China discovered that certain U.S.-built passenger cars were aided by unfair subsidies, damaging its automakers; however, Beijing sought to avoid a trade dispute with the U.S. by not hitting them with duties.
The decision may improve U.S.-China relations, which are already strained due to the appreciation of the yuan and complaints from the U.S. that Beijing is showing that it favors giant state-owned enterprises by maintaining borrowing costs at a low level.
In November 2009, China's Commerce Ministry launched the probe in an attempt to protect Chinese automakers against U.S. rivals. In 2010, U.S. exports of new and used passenger cars to China tripled to $3.4 billion, compared to figures in 2009.
In a statement, the ministry said that after a probe, the Commerce Ministry made a final decision to give subsidies to U.S. firms that build sedans and sports utility vehicles of 2.5 liters and bigger involved in dumping.
It said that China's domestic car industry had “substantial damage.” It also cited a causal link between the dumping and subsidies and the material damage. The ministry also said that the Customs Tariff Commission of the State Council has agreed that for now, anti-dumping duties and countervailing duties are being investigated.
This announcement from China arrived just days before the annual Strategic and Economic Dialogue where the different economic and diplomatic issues between the U.S. and China will be discussed. Expected to be at the center of these discussions are the trade disputes.